(Bloomberg) — Goldman Sachs Group Inc. said investors should sell S&P 500 Index calls and fund buying of the same options on the Hang Seng China Enterprises Index to position for a likely catch-up in battered China-related assets.
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“Sentiment on China-exposed assets has remained subdued this year and did not mirror the risk appetite rebound during the summer,” undershooting a measure of appetite for global growth, strategists including Christian Mueller-Glissmann wrote in a note dated Oct. 17.
While the options market is portending swings in the near-term for China-related assets, the volatility of the HSCEI Index is cheap versus that for the S&P 500 Index, they wrote.
The US bank’s bullish views on China equity call options come after the nations’ stock gauges consistently featured among the world’s worst benchmarks this year as reopening and stimulus hopes have been sold into.
China assets are tackling Covid-induced lockdowns, a crisis in property market and a rekindling of US-China tensions on top of a worsening global macro backdrop. The HSCEI Index has dropped 31% this year compared to a 23% fall in the S&P 500 Index.
Goldman is overall underweight in equities in its cross-asset allocation but remains overweight on China in Asia and neutral on the S&P 500 Index. The bank prefers China’s A-shares over offshore equities as they are comparatively less exposed to global macro headwinds and the US-China tensions, the strategists wrote.
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